AbstractAbstractDifferential pricing of medicines: What about the rest of the world?

Danielle Lang, Suzanne HillUniversity of Newcastle

Problem Statement: At the 2001 Joint WHO/WTO Workshop on Differential Pricing and Financing of Essential Drugs, there was general agreement “that differential pricing could, and should, play an important role in ensuring access to existing essential drugs at affordable prices, especially in poor countries, while allowing the patent system to continue to play its role of providing incentives for research and development into new drugs”. However, despite general support for the use of differential pricing, its use to date appears to have been limited.

Objectives: To assess the current state of play in the pharmaceutical market: the use of differential pricing; limitations to its implementation; and a possible way forward.

Design: Review of the literature on access to medicines.

Results: There has been some success in negotiating differential prices for pharmaceuticals. Significantly reduced prices (1-5% of developed country prices) for vaccines and contraceptives have been achieved, allowing millions to gain access to these products, while increasing manufacturers’ sales, and preventing re-importation of the discounted products to wealthier markets. Generic competition in the market for antiretrovirals has seen the cost per patient per year of triple combination therapy drop from more than US$10,000 to less than US$200 in just three years.

Conclusions: Although the feasibility of differential pricing (and the prevention of parallel importation) has been demonstrated by sharply differentiated prices for vaccines, contraceptives and antiretrovirals, widespread adoption of differential pricing has not occurred. Further research is required on how fair, affordable prices should be determined and on the cost implications for key stakeholders, including manufacturers.

Study funded by: No funding.

ResultsResultsThe differential pricing search of the published literature resulted in 169 references (see Box 2). Of these:

• 146 were excluded after title/abstract review;• a further 6 were excluded after review of the complete paper;• 21 additional papers articles were included after manual searching the

references of included articles; and• 43 additional papers were included after Google internet searches of key

organisations.

A total of 81 papers were included in the systematic review.

DIFFERENTIAL PRICING OF PHARMACEUTICALS: WHAT ABOUT DIFFERENTIAL PRICING OF PHARMACEUTICALS: WHAT ABOUT THE REST OF THE WORLD?THE REST OF THE WORLD?

BackgroundBackgroundAll countries in the world face the problems of rising drug expenditure.

However, the problems of assuring the availability of affordable medicines are most acutely felt in those developing countries with a high prevalence of HIV/AIDS.

At the April 2001 WHO/WTO Workshop on Differential Pricing and Financing of Essential Drugs there was general agreement among the experts that,

differential pricing could, and should, play an important role in ensuring access to existing essential drugs at affordable prices, especially in poor countries, while allowing the patent system to continue to play its role of providing incentives for research and development into new drugs [WHO/WTO, 2001].

Despite general support for differential pricing of pharmaceuticals, and its potential benefits for all key stakeholders, its use to date has been limited.

MethodsMethodsA search of the literature (Box 1) on access to medicines, with a particular focus on the differential pricing of medicines, was conducted in June 2003, and updated in December 2003.

Manual searching of the references of the retrieved papers was undertaken to identify additional publications not identified by the electronic search.

Google Internet searches of the websites of key organisations (including, MSF, Oxfam, UN, World Bank WHO), were also performed to find unpublished (‘grey’) literature.

Lang D, Hill SSchool of Medical Practice and Population Health

ReferencesReferences• CMH. Macroeconomics and health: investing in health for economic development. Report of the Commission

on Macroeconomics and Health. World Health Organization 2001.• Cohen J, Illingworth P. The dilemma of intellectual property rights for pharmaceuticals: the tension between

ensuring access of the poor to medicines and committing to international agreements. Developing World Bioethics 2003;3(1):27-48.

• Lopert R, Lang D, Henry D. Differential pricing of drugs: a role for cost-effectiveness analysis? The Lancet 2002;359:2105-2107.

• Médicines Sans Frontières. Untangling the web of price reductions: a pricing guide for the purchase of ARVs for developing countries. 5th edition ed, 1st December 2003.

• Médicines Sans Frontières. Doha derailed: a progress report on TRIPS and access to medicines. MSF briefing for the 5th WTO Ministerial Conference, Cancún 2003.

• MSF, Oxfam, HAI. Joint letter to WHO member country delegations to the 56th World Health Assembly. 13th May, 2003.

• Perez-Casas C, Herranz E, Ford N. Pricing of drugs and donations: options for sustainable equity pricing. Tropical Medicine and International Health 2001;6(11):960-964.

• UK Working Group. Policy recommendations and strategy: report to the prime minister. UK Working Group on Increasing Access to Essential Medicines in the Developing World. 28 November, 2002.

• WHO Secretariat. More equitable pricing for essential drugs: what do we mean and what are the issues? (Background paper). WHO/WTO Joint Secretariat Workshop on Differential Pricing and Financing of Essential Drugs (April, 2001); 2001; Høsbjør, Norway.

• WHO/WTO. Report of the Workshop on Differential Pricing and Financing of Essential Drugs. WHO/WTO Secretariat, 2001.

Aims and objectivesAims and objectivesTo conduct a systematic review of the published and ‘grey’ literature on the differential pricing of pharmaceuticals to:

• define what is meant by differential pricing;• assess the possible advantages of differential pricing;• explore the limitations to the implementation of differential pricing, and how

these might be resolved;• determine the different mechanisms by which differential pricing can be

achieved;• assess the current extent of use of differential pricing;• explore how wider adoption of differential pricing might be achieved; and• determine if, and what, further research is required on differential pricing.

BOX 1: Search strategy (BOX 1: Search strategy (Medline/Embase/Cochrane/EconLit/ProQuest)Medline/Embase/Cochrane/EconLit/ProQuest)Differential pricing search:

1. (‘differential’ or ‘tiered’ or ‘equity’ or ‘preferential’ or ‘discriminatory’) adjacent to (‘pricing’ or ‘price’); and

2. ‘pharmaceutical’ or ‘medicine’ or ‘drug’.

Additional, broader searches performed:1. (‘availability’ or ‘affordability’ or ‘access’) or (‘price’ or ‘pricing’) or (‘market

segmentation’ or ‘parallel import’ or ‘parallel trade’ or ‘compulsory licensing’); adjacent to

2. (‘pharmaceutical’ or ‘medicine’ or ‘drug’).

WHO Collaborating Centre for Training in Pharmacoeconomics and Rational Pharmacotherapy

What is differential pricing?What is differential pricing?Differential pricing:

• is “the process of charging different prices in different markets, according to each country’s ability to pay” [WHO/WTO, 2001];

• means higher prices in richer countries, lower prices in poorer countries; and• is also referred to as equity pricing, tiered pricing, preferential pricing,

discriminatory pricing.

Non-drug examples of differential pricing:• airlines – cheaper tickets have more restrictions (book in advance, travel

includes Saturday night);• seniors/student discounts – cheaper movie tickets, entertainment entry for

those with lower incomes

Differential pricing can be a win-win solution, leading to:• cheaper drugs and improved access for those previously unable to afford

medicines;• increased market share for drug producers who sell their products at lower

prices (but in higher volumes) in lower income countries;• no increase in drug prices for consumers in developed countries; and• consistency with international agreements on trade.

Why is differential pricing possible?Why is differential pricing possible?• Marginal costs of medicines (the costs of production and distribution) are

typically very low;• But there are large, fixed costs (such as R&D);• This allows low-income markets to pay only for marginal costs; and• High-income countries to pay more than marginal costs by enough to cover the

global costs of research and development.

How might differential pricing be How might differential pricing be achieved?achieved?

• Voluntary discounts by companies – ie, creating the right conditions and leaving it to the market;

• Bilateral negotiation between governments and companies;• Increasing generic competition by:

– voluntary licensing; or– compulsory licensing;

• Regional or global bulk purchasing; or• A flexible global differential pricing system.

[Source: WHO/WTO, 2001]

Limitations of differential pricingLimitations of differential pricing• Differential pricing is only feasible for ‘global’ diseases, whereby drugs have a

rich country market to re-coup R&D costs – there is no solution for ‘neglected’ diseases; and

• Differentially priced drugs may still be unaffordable for some countries, and international funding may be required to subsidise drug purchases.

Evidence of differential pricingEvidence of differential pricingVaccines and contraceptives:

– prices 1-5% of developed country prices have been negotiated;– millions have gained access;– pharmaceutical companies have increased their sales; and– re-importation to wealthier markets has been prevented.

[Perez-Casas, 2001]

An anti-malarial, artemether-lumefantrin:– supplied at different prices under two brand names, each with distinctive

packaging;– one brand name is marketed in high income countries to travellers at standard

price; and– the same product, under a different brand name, is sold in low-income,

endemic countries at about one quarter of the price.[WHO Secretariat, 2001]

Antiretrovirals– the annual cost of antiretrovirals has tumbled from US$10,000-$15,000 to less

than US$200; and– discounts appear to have been in response to:

• international political and public pressure; and• generic competition

[Médicines Sans Frontières, 2003]

Differential pricing search N=169

Exclude (n=146)- not differential pricing of drugs (n=107)- duplicates (n=26)- price differences within US (n=11)- non-English (n=2)

Include (N=17)- differential pricing overview (n=9)- the economics of differential pricing (n=2)- how differential prices might be set (n=1)- examples of the use of differential pricing (n=3)- book on the economics of medicines (n=1)

After title/ abstract

review

Include (n=23)- article/review (n=18)- news item (n=3)- book (n=1)

After review of complete reference

Exclude (n=6)- price differences within US (n=2)-pharmaceutical industry overview (n=1)- does not refer to differential pricing (n=2)-disadvantages (to industry) of price regulation (n=1)

BOX 2: Inclusion/exclusion flow diagramBOX 2: Inclusion/exclusion flow diagram

Threats to differential pricingThreats to differential pricing• parallel importation (or arbitrage), whereby products sold at low prices in

lower income countries are diverted to higher-income higher-priced countries;• international price benchmarking (or referencing), whereby drugs in higher

income countries are set according to prices in lower income countries;• differentially priced products in lower-income countries being burdened with

high taxes and wholesale and retail mark-ups, making them unaffordable.

Differential pricing or just drug Differential pricing or just drug discounts?discounts?Despite general support for differential pricing, price reductions to date have been limited:

– To a few drugs and diseases;– To the least developed countries, or countries with a high prevalence of

HIV/AIDS; and– Occurring only after generic competition.

Differential pricing should be the “operational norm” [CMH, 2001; UK Working Group, 2002]. There needs to be a more systematic approach to differential pricing, which includes all drugs and all countries.

Negotiating on a country-by-country, drug-by-drug, company-by-company basis is not feasible. Many countries lack the human resources, experience and bargaining power which are needed to successfully negotiate price reductions for essential drugs.

This would require the support from governments, companies, NGOs and international agencies. Proposals in the literature generally propose that a UN organization such as WHO, or the World Bank advocate for a more systematic approach to differential pricing [eg, Cohen, 2003; MSF, Oxfam, HAI, 2003.]

““We would expect that middle-income countries would We would expect that middle-income countries would generally pay more than the low-income countries, but generally pay more than the low-income countries, but

less than the rich countries.” [CMH, 2001]less than the rich countries.” [CMH, 2001]

But how should fair and affordable But how should fair and affordable prices be set?prices be set?Agreement on the principles of differential pricing is easy to reach, but agreement on a mechanism to establish prices that represent good value in different settings is much harder [Lopert, 2002].

There is little in the literature on how fair and affordable differential prices might be set. Some suggestions include:

- using marginal cost of production (plus a percentage for profit);- setting a target price as a percentage (eg 5%) of developed-country prices; or- using cost-effectiveness analysis, setting a threshold cost per healthy life year equal to

some measure of affordability, such as per capita GDP[WHO Secretariat, 2001]

Further researchFurther researchThere is clearly a need for further research to determine:There is clearly a need for further research to determine:• how a systematic differential pricing scheme, inclusive how a systematic differential pricing scheme, inclusive

of all countries and all pharmaceuticals, can be of all countries and all pharmaceuticals, can be achieved; andachieved; and

• how fair, affordable differential prices could be how fair, affordable differential prices could be determined.determined.